On a day when investors’ double-digit disappointment over Peloton’s earnings and guidance scream for attention, it can be hard to hear the soft-spoken insights of the connected fitness firm’s new CEO.
And yet, while Barry McCarthy is clear that “Peloton’s turnaround remains a work-in-progress,” he is also reminding investors that stabilizing — not growing — the company was targeted to take at least a year, and by that measure, the plan is progressing well.
“We are beating that timeline,” McCarthy told investors in a letter and webcast assessing its fiscal first-quarter results, in which he also made clear that “the ship is turning.”
To be sure, a slowing economy, high inflation and increasingly cautious consumer spending habits have certainly added to the headwinds Peloton is facing, with McCarthy conceding that “near-term demand for Connected Fitness hardware is likely to remain challenged.”
Keep Pedaling
Even so, McCarthy said, the company’s mix of cost cuts, layoffs and operational changes are taking hold, especially the beleaguered brand’s newest initiatives including its digital Fitness as a Service offering, certified pre-owned program to move secondhand hardware, as well as its commercial partnerships with brands such as Hilton Hotels, and foray into third-party retail sales.
“We broadened our retail strategy because we felt it was important to be where our customers are,” McCarthy said on the call. “How’s it going so far? Well, Amazon has outperformed our expectations, that’s for sure, and we have just launched Dick’s Sporting Goods, and we have high expectations for it, given what we are seeing, that it will outperform over time too.”
Although no specifics were given in terms of additional retail partners, McCarthy said the company would “lean into” the new retail strategy and learn and react in real time to minimize losses and adjust to the lower margins it takes when selling on other platforms.
FaaS is Fast
The other contrarian outlook that helped pare Peloton’s dive in early trading involved its update on its revamped Fitness as a Service (FaaS) program which is at the core of the company’s plan to reach 100 million digital users who log in to work out on whatever gear and equipment they have — be that a Peloton bike or something else.
“There’s still unanswered questions about whether or not FaaS will be financially viable for the long term,” McCarthy said, “But what I’ve learned from the early growth is that we absolutely have to figure out how to make this work for us,” he added, pointing to its enormous popularity and incremental growth opportunity.
“We are attracting to our subscriber base a demographic which we have not previously been able to access, so it's expanding our camp,” he said. “FaaS is growing really fast,” he added. With an average of 175 new sign-ups per day in the past two weeks, “we’ve only just begun leaning into it on the web to grow it,” he said.
While McCarthy approaches his first anniversary in February, there is clearly more work to be done, with the company projecting current quarter revenues will be down more than 30% from a year ago, with only modest near term gains expected in its subscriber base of 2.9 million connected fitness users via its revised “good, better, best” price point mix aimed at increasing accessibility.
“While macroeconomic uncertainty and concerns about a potential recession impacting consumer spending levels are real, we take comfort in knowing fitness spending has proven to be resilient during previous recessionary periods,” McCarthy pointed out in his letter to shareholders.
While investors may be looking at an 80% year-to-date decline in the company's stock, McCarthy said Peloton is focused on "providing the most compelling, accessible, and comprehensive Connected Fitness offering in the market."
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